Lithuania: how energy from biogas is supported — a tariff for small installations, premium auctions for the rest

The Lithuanian system of support for energy from biogas rests today on two principles: small installations up to 10 kW have a fixed tariff, and all larger ones, including typical agricultural biogas plants, must win a market premium auction. Installations that inject biogas into the gas grid follow a separate track and are not covered by the electricity tenders.

Two tracks for electricity

According to the EurObserv'ER overview, installations up to 10 kW are entitled to a technology-specific fixed tariff, which covers 50% of the energy produced. Above this threshold a market premium can be obtained only in a tender. For biogas plants this means that the path of "register the installation and collect a fixed rate" is no longer available to the vast majority of projects.

The market premium works as follows: the generator sells energy on the market, and the bid premium is paid on top of the market energy price. In the 2019 auction a bid cap of a €48.93/MWh premium was adopted; the premium is paid for 12 years, provided the project generates the agreed quantity of energy.

Auctions since 2019

The first technology-neutral auction was announced on 2 September 2019, and the bid deadline passed on 25 November 2019. The pool was 300 GWh, and solar and wind power plants and biogas and biomass installations could apply for support (details in the report on the first round). The schedule announces further rounds:

Biogas in the gas grid

According to the same overview, biogas injected into the gas grid is settled outside the electricity auction system: tariffs are set by the regulator, and the grid operator is obliged to take biogas that meets the quality requirements. This solution is close to the logic of fixed tariffs: the producer knows the purchase price in advance. For an investor the choice of route (cogeneration from an auction or injection with a regulator tariff) affects the entire project model, from the size of the installation to the use of heat.

What follows from this

• A biogas plant above 10 kW has no guarantee of receiving support, because the cheapest bid in the auction wins, not every applicant.
• The market premium shifts energy price risk onto the generator, so flexible operation of the engine and heat sales matter.
• With the zero bids submitted by at least three participants in the first round, cost pressure is growing on all technologies, including biogas.
• For investors planning to use biogas for cogeneration, preparing the project (permits, grid connection) before the auction date is announced is key, because round dates are announced in the schedule.

Comparison with other countries in the region

The Lithuanian model is not unique: Estonia uses a similar sliding premium scheme paid for 12 years, and in Finland the biogas tariff was closed at the beginning of 2019 and replaced with a tender mode. In Poland, by contrast, biogas and biomass compete in separate auction baskets. The principle is common: countries are moving away from fixed rates towards price competition, and biogas, which has higher fuel costs than wind or solar, loses out where there is no technology basket.

Example: how the market premium works

To illustrate the mechanism, two hypothetical figures can be assumed (these are not auction results). If a generator won with a premium bid of €30/MWh, and the average market price in a given period is €50/MWh, its revenue is the market price plus the premium, that is €80/MWh (the details depend on the contract, including how the market price is calculated). A bid of "€0/MWh" means a willingness to run the project without top-up payments in a given price scenario.

The €48.93/MWh ceiling acts as an upper limit on cost for the budget. Biogas plants with higher generation costs must compare their cost with this cap already at the feasibility study stage: a project that needs a premium higher than the ceiling has no chance of winning regardless of the quality of its documentation.

What to look at when analysing a project

Before entering an auction it is worth checking three things: the required minimum production level (the premium is due when the project generates the agreed quantity of energy), the terms of guarantees and penalties for missing deadlines, and the possibility of selling heat throughout the support period. Each of these elements affects the premium an investor can reasonably bid.